Superior segmentation in pharma marketing

As patients and payers join in the prescribing decision, the industry needs new models of definition

Theodore Levitt, who many see as one of marketing's founding fathers, captured the importance of segmentation in one well-chosen phrase: 'If you're not thinking segments, you're not thinking'. In those few words he captured one of the fundamental truths of marketing in pharma and indeed any business; as markets mature, customers are differentiated into groups with distinct needs.

Any marketing strategy that ignores that will, at best, deliver poor ROI and, at worst, fail. Market segmentation is nothing new to pharma, but the fundamental changes now driving the industry, from market access to the web-enabled patient, are making pharma markets more heterogeneous and traditional segmentation methodology obsolete.

Traditionally, most pharma marketers have tried to manage the heterogeneity of the market in two ways; patient segmentation or prescriber segmentation. The first, patient-focused approach recognises that, even if they are all suffering from the same condition, patients have varying needs.

These may depend upon disease stage, contraindication, compliance or some other clinically-recognised criteria and they are used in the majority of segmentation approaches. Patients may also differ as a result of non-clinical criteria, such as apathy vs. determination (in some oncology markets, for example) or emotional needs (such as in erectile dysfunction or mental health) and these attitudinal factors are used in more sophisticated segmentation methods.

The second, prescriber-orientated approach recognises that, even when faced with identical patients, physicians are a diverse group. Perhaps the most common characteristic used to segment prescribers is their openness to innovation. Innovators and early adopters are often seen as targets for new products, while the more mainstream physicians gain the attention of those companies trying to defend their incumbent brands.

Other physician criteria, such as degree of patient empathy or commercial orientation have, in similar ways, been used to target salesforce and marketing communications resources and, in some cases, other assets such as medical liaison teams. In recent years, a third approach to the segmentation of pharma markets has begun to evolve, based on differences between payers.

Less developed than the two older approaches, payer segmentation is often based on the observation that some payers have narrow, cost-based, definitions of value while others take a broader, holistic view of the worth of a pharmaceutical. This distinction is often one that guides a shift from traditional salesforces to key account management.

What all three of these traditional approaches have in common is that they segment the people (patients and prescribers) or organisations (payers). Implicit in these approaches is that an individual or organisation fits in to a category more or less permanently, so that any 'innovative prescriber', 'disease stage 2 patient' or 'narrow value payer' will always respond in the same way to a given value proposition. The traditional approach does allow for people or organisations to move from segment to segment, but this is considered an unusual event with a slow rate of change.

For the purposes of traditional marketing, segmentation is stable, semi-permanent and leads to fairly routine processes of targeting and positioning. To a large degree, this approach has served the industry well. Like Newton's laws of motion, they may not be exactly right at a microscopic level, but they are good enough, just as Newton's equations are good enough, without Einstein's theory of relativity, to explain most phenomena in the real world. But just as Newton left some questions unanswered and Einstein's work was needed to usher in an age of nuclear power and semiconductors, the changes facing the pharmaceutical market are showing the cracks in the old models of segmentation.

Those cracks are obvious to anyone trying to make segmentation work in a competitive pharma market today. Innovative prescribers are not responding to great new products because payers will not let them. In some markets, proactive patients (or their advocacy groups) are making more of the prescribing decisions than the doctor. And apparently mighty cost-driven payers are failing to drive the adoption of some products because of the influence and resistance of some prescribers and patient groups. This does not fit traditional segmentation concepts; the theory needs revision.

In fact, the answer to this problem has existed for many years, but outside the pharma market. Consider restaurants, for example. In a given week, the same customer may eat in a fast-food chain, a down-market Chinese restaurant and a Michelin-starred restaurant, with spending varying by orders of magnitude between each one. This is not unusual and people do not question it, but which segment is that customer in?

The answer is, of course, that he is in three segments: On Monday, he was in the 'with kids after swimming lesson' segment, on Friday, the 'night out with the boys' segment and on Saturday the 'wedding anniversary' segment. As everyone knows, needs and preferences vary with circumstances, a concept known by academic researchers as contextual segmentation.

The same occurs when buying clothes (business dress, social casual, social smart), when buying books (gift, holiday read, study) and many other contexts. The notion of conceptual segmentation helps to explain the idea that it is not purchasers who are segmented, but purchases. At its root lies the reality that while some choices are individual (a chocolate bar, a handbag or an MP3 player, for example) many, and perhaps most, choices happen in a context in which other people's needs have to be considered. Restaurants are a simple example, but so are choices such as a family car, a corporate IT system and, increasingly, prescription drugs.

Of course, it is naive and simplistic to compare the situation for drugs too closely to other markets; regulation and many other factors make the pharma market unusual. But the fact remains that as the prescribing decision shifts from being the individual doctor to the patient/payer/prescriber complex, the industry can learn something from these other, technologically simpler but commercially more mature markets.

What practical lessons does the contextual segmentation concept hold for pharma? There are five key points.

The first is that it is still necessary to understand the segmentation of each player: patients, prescribers and payers. It is especially important to understand the role of not only rational, but also irrational, behaviours in each group.

The second lesson is that segmentation must not stop at this level. Instead, the three groups must be 'cross-tabulated' to create a three-dimensional picture of all possible segments in the market place.

The third step is to select from the three-dimensional picture those segments that really exist in a specific market. Because of the way payer, prescriber and patient segments needs conflict, the reality is usually simpler than it may appear and some segments are simply too small or inaccessible to be a concern. Here, it is essential to apply the four tests of a strong segment, as first devised by Philip Kotler, who stated that a useful contextual segment must be HDAV:

Homogenous – every decision made in this context must respond to a given value proposition in a similar way to all other decisions in this contextual segment

Distinct - every decision made in this context must respond to a given value proposition in a different way to other decisions in different contextual segments

Accessible – the decision makers in this contextual segment must be accessible, directly or indirectly, to the company

Viable – the contextual segment must be big enough, profitable enough and long-lasting enough to be worth investing resources into it.

Once HDAV segments are identified, they are acted upon in the same way as in traditional approaches. They are prioritised (usually using a technique such as Directional Policy Matrix) and the needs and characteristics of the targeted segments are used as the basis to develop compelling, distinctive and segment-specific value propositions.

Few, if any, pharma marketers are unaware of the scale and importance of the changes that are shaping their market. Market access, globalisation, technological change and many other factors are creating a once-in-a-century transformation of the industry. Many pharma marketers, however, remain wedded to their habits of segmenting individual prescribers, patients or payers and have failed to grasp the old, but new to pharma, concept of contextual segmentation. To expect old methods to work in new contexts is, to adapt a quote from Einstein, one definition of madness.

The AuthorBrian D Smith is adjunct professor at SDA Bocconi and a visiting research fellow at the Open University Business School. He also runs www.pragmedic.com, a specialist strategy consultancy.